The development of an export opportunities model for South African services

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The services sector has played an increasingly important role in international trade in recent years. The negotiations under the General Agreement on Trade in Services (GATS) in recent years have initiated a global drive to liberalise services trade. However, this liberalisation process holds many challenges, especially for developing countries that do not have an adequate regulatory system to sufficiently support and promote these new export sectors. The Department of Trade and Industry (DTI) in South Africa recognised a need to undertake scientific research to identify the development and export potential of key services sectors.
In the period from 2005 until 2009, the services sector contributed 65% on average to the GDP of South Africa. In 2010, 79% of the labour force in South Africa was employed in the services sector. However, services only contributed 19% to total exports from South Africa in the period from 2005 until 2009 (ITC, 2010a). The largest services export sectors for South Africa over the five–year period were travel (63%), transportation (11%), and business services (9%). This indicates that South Africa?s services exports are mostly concentrated in one sector, namely travel, and this clearly indicates the need for South Africa to diversify exports of services into other sectors.
Export promotion is one of the methods that governments can use in order to stimulate the export growth of a country. Given the need to increase and diversify the exports of South African services, this study aimed to investigate the literature in order to establish possible guidelines for the export promotion of services specifically.
Export promotion instruments should aim to identify potential export opportunities in order to allocate scarce government resources to the active promotion of the sectors with the highest export potential. In order to aid government with this process, Cuyvers, De Pelsmacker and Roozen (1995) developed a decision support model (DSM) that could determine potential export opportunities for products in Belgium by using a scientifically–based method. This model was adapted for South African products in 2007 and further refined in 2009 and 2010 for the DTI in South Africa. In all cases, the DSM analysis was only applied to products and the services sector was never taken into consideration owing to the data differences and the nature of services. Therefore, this study aimed to develop a similar model for the services sector in South Africa that could identify the sectors and countries with the highest potential for services export diversification. The results of such a model could also be incorporated into a services sector strategy for South Africa. Such a services strategy does not currently exist for South Africa and if the results of this model were incorporated into such a strategy, it would be the first of its kind.
The study reviewed the methodology of the DSM for products and found that the methodology of the first two filters could be applied to the available services data in a similar manner. However, owing to the nature of services and the limited availability of data, the third and fourth filters had to be adapted to consider these differences. Therefore, a new model was developed to incorporate the nature of services, and the new model was named the export opportunities model (EOM) for services. A new methodology was developed for the third and fourth filters in the EOM for services. A new cell structure was also constructed to categorise the results of the EOM according to the specific market characteristics, which could be used in export promotion strategies to develop specific promotion instruments for each type of market.
The results of the EOM for services on a geographical basis showed that the highest export opportunities for services in South Africa were in Eastern and South–Eastern Asia, followed by the European market. The results also identified specific sectors that have high export potential for South African services. The sectors with the highest export potential are travel, transportation, construction services, communications services and other business services. These results can be incorporated into a services sector export promotion strategy for the DTI in South Africa.
The study also compared the results of the DSM for products with the results of the EOM for services, in order to establish guidelines on regional export opportunities for both products and services. The study found that the highest export opportunities were in the Asian and European regions. The DTI in South Africa could use these product/country combinations and services/country combinations to develop specific export promotion instruments and strategies for each region in the world.